8/10/2009 @ 5:00PM

Most Expensive Places For Health Care

When it comes to their health, patients in the Miami area have plenty of options.

There are 3.7 hospital beds per 1,000 Miami-Dade County residents compared to a national average of 2.7. There are 47 medical specialists per 100,000 residents, just above the national average of 45. The metro area is also at the forefront of cutting-edge technology. Miami-Dade County has two Gamma Knives, a non-invasive neurosurgical radiation tool that costs as much as $5 million. By 2012, the Miami area will be home to at least one $150 million proton beam, also used for radiation treatments.

What Miami patients may fail to realize, however, is that their care is the most expensive in the country. The cost of treating the average Medicare patient was $16,351 in 2006, the last year for which data was available. That’s twice the national average. (Medicare data provide the most uniform and publicly available source of health care spending and often mirrors trends in the private sector.)

Worse yet, the extra spending doesn’t yield better health outcomes. The same is true in markets across the country, including Los Angeles, Dallas, and Newark, N.J., where it costs $10,810, $10,103 and $10,467, respectively, to treat a Medicare patient.

The conundrum, highlighted earlier this year when the Dartmouth Institute for Health Policy and Clinical Practice released its analysis of Medicare data, is a focus of this summer’s health-reform debate. While it’s estimated that Americans spent $2.4 trillion on health care last year and spending is expected to comprise 48% of the GDP by 2050, there is scant evidence to show that rising costs have led to improved health.

The reasons for this are many, says Dr. David Goodman, a professor of pediatrics and of community and family medicine at the Dartmouth Institute, which studies the health care system and publishes its analysis of spending variations in the Dartmouth Atlas.

The most fundamental problem, Goodman says, is that while most markets benefit from increased competition, the inverse is true of health care. When supply increases, as it often does in major metropolitan and suburban areas where medical school graduates are many and hospitals compete for business, demand increases as well, driving up the cost. Add to that payment schemes that encourage overuse and covering the tab for treating the uninsured, among other factors, and it becomes clear why health care is more expensive than ever.

Explaining the Variations

Steven G. Ullmann, director of programs in health sector management and policy at the University of Miami School of Business Administration, says that one need look no further than the price of a brain MRI to know that something is awry in Miami. The fee can range from $400 to $4,000 depending on the facility. While one might expect more consistent prices in a market like Miami–where there are plenty of health care professionals and services–the extreme variation shows how the standard rules of competition often don’t work in the health care sector.

“It’s a reflection of a marketplace that is not working terribly well,” Ullmann says.

Methodology

The Dartmouth Institute for Health Policy and Clinical Practice tracks trends in health care spending and outcomes. Earlier this year, it released an analysis of Medicare data, which demonstrated that the federal program spends markedly different amounts on beneficiaries depending on where they live. The data, which has been adjusted for age, sex and race, is organized by hospital referral region. Each HRR is much larger than the city proper; to see the boundaries of each region, visit this interactive map.

While Ullmann agrees that the proliferation of services and professionals in the Miami area has led to increased spending, he also says that costs are driven by fears of medical malpractice and the high number of uninsured patients, both of which add to the bottom line.

Between 2000 and 2004, Florida insurance companies reported closing more than 8,500 medical malpractice claims against any health care provider, the highest among states with comprehensive databases. An estimated one-quarter of Miami-Dade County residents are uninsured.

Though Miami-Dade’s share of residents 65 and older accounts for 14% of the population, that doesn’t explain why it topped the institute’s list. An annual report by the actuarial and consulting firm Milliman found that Miami had the highest level of private sector medical spending among 14 major metro areas studied. According to the firm’s analysis, it costs $20,282 for a family of four covered by an employer-sponsored preferred provider organization (PPO) compared to a national average of $16,771.

Eliminating the Variations

J. Darren Rodgers, president of Blue Cross and Blue Shield of Texas, can sympathize with the market dysfunction in Miami.

Three Texas cities–McAllen, Harlingen and Corpus Christi–rank in the top 10 of the Dartmouth Atlas data. Treating a Medicare patient in each of these places costs more than $10,000. According to BCBS data, which draws on 4.3 million members, Dallas and Houston rank as the most expensive metro areas, 15% higher than Austin and San Antonio and 20% higher than El Paso.

Eliminating the variations in cost, Rodgers says, would challenge Texas’ “Lone-Rangerish” mentality when it comes to providing health services. The state does not require certificate of need to open a new hospital or other health care facility. These minimal regulations have given way to 58 physician-owned facilities across the state, and another seven are scheduled to open in the next year.

Increased supply in the industry at-large, Rodgers says, could be tamed by reforming the payment system. One alternative includes rewarding physicians with a bonus when their patients have excellent outcomes. Blue Cross and Blue Shield of Texas has shifted 25% of its non-hospital physicians to this payment structure in the past three years and plans to increase that share to 30% by the end of the year. Rodgers says the program has paid $2 million in bonuses and saved the company more than $8 million.

Some hospital systems don’t collect fees for each service provided to a patient, but instead pay their physicians a standard salary. This model has worked successfully at the Mayo Clinic and Cleveland Clinic, and has been shown to deter overuse of services, such as unnecessary imaging, laboratory testing and consultations.

Containing cost in the state, says Rodgers, will also require addressing very basic issues like how to provide insurance to the 25% of residents who are uninsured and how to treat the high number of Texans who are obese and have chronic diseases like diabetes and heart disease.

Such details can seem technical and even irrelevant to patients who are insulated from the cost of health care when they receive government or employer-sponsored benefits. But these questions are central to the health care reform debate; legislation introduced at the beginning of September will attempt to answer many of them.

Those worried about the high cost of health care in Miami or elsewhere in the country should pay close attention to what Congress decides, says Miami University professor Steven G. Ullmann.

“What goes on nationally,” he says, “will definitely impact what goes on locally.”